Question:
The average revenue \( R_A \) is 50 and elasticity of demand \( \eta \) is 5, the marginal revenue \( R_M \) is ..............
The average revenue \( R_A \) is 50 and elasticity of demand \( \eta \) is 5, the marginal revenue \( R_M \) is ..............
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This formula is a key application of derivatives in economics. It helps businesses understand how a change in price will affect their total revenue, based on how sensitive demand is to price changes.
Updated On: Sep 25, 2025
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Solution and Explanation
Step 1: Recall the formula that relates marginal revenue (\(R_M\)), average revenue (\(R_A\)), and the elasticity of demand (\(\eta\)).
\[ R_M = R_A \left(1 - \frac{1}{\eta}\right) \]
Step 2: Substitute the given values \( R_A = 50 \) and \( \eta = 5 \) into the formula.
\[ R_M = 50 \left(1 - \frac{1}{5}\right) \]
Step 3: Simplify the expression.
\[ R_M = 50 \left(\frac{4}{5}\right) = 10 \times 4 = 40 \]
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